Galaxy Resources Limited (ASX:GXY) update on Jiangsu Lithium Carbonate Plant

The new schedule indicates that the back half of the Jiangsu plant – which includes purification, drying, micronising and bagging will be completed with commissioning to commence during Q3 2011. The front half of the plant – which includes calcination, sulphation, leaching and precipitation – is expected to be completed with commissioning to commence during Q4 2011.

The Project schedule has been pressured by a significant tightening of the skilled labour market in China’s Jiangsu region, which has resulted in delays to construction and equipment delivery. As highlighted in Galaxy’s March 2011 quarterly report, economic advancement in China’s western provinces this year has resulted in a sharp reduction in skilled labour returning to east coast projects like Jiangsu post-Chinese New Year.

Labour shortages have also adversely impacted equipment and plant suppliers and their ability to deliver to the Jiangsu Project on time. In addition to labour constraints, some late changes to the plant design from the local approval process, an increase in plant power capacity and alterations to equipment delivery timeframes added pressure to the Jiangsu schedule and budget.

Project Review

The Company has been waiting for the Project’s EPCM contractor, Hatch Engineering (Hatch), to complete a thorough review of the Project schedule and budget during the last few months.

Hatch’s revised schedule and budget plan indicates that the back half of the Jiangsu plant will be completed with commissioning to commence during Q3 2011. Once operational, the back half of the plant (including purification) will produce some battery-grade and higher-grade lithium carbonate product for the market. Galaxy will purchase industrial grade lithium carbonate for feedstock until the remainder of the plant is commissioned.

As per the revised schedule, the remainder of the Jiangsu plant – including calcination, sulphation, leaching and precipitation – will be completed with commissioning to commence during Q4 2011.

Project Capital Forecast

The revised capital budget has been adjusted to A$99.8 million (RMB 689 million) from the previous estimate A$72.5m, representing a 36% increase in Australian dollar terms.

Most of the increase relates to a rise in material requirements (such as concrete, steel and process equipment) which have emerged as design details were finalised. The balance relates to the higher cost of materials and labour, as well as inflationary pressures and scope changes to the Project.

Comments

Mr Tan said the previous estimation of material quantities and design changes was the result of the Company’s strategic decision to build the Jiangsu plant on an accelerated basis, paralleling both the design and construction process. In addition, the market demand for higher purity lithium (>99.5%) persuaded the company to add a secondary purification circuit to the original design.

Mr Tan said no further capital raising will be required to complete the construction and start up of Jiangsu as a contingency was incorporated in the previous A$120 million raising last quarter.

The Company has limited debt, having discharged the CDB/RZB senior loan facility and replaced it with a commercial fixed asset credit line with the local China Construction Bank. Loan drawings from this facility will fund the completion of the Jiangsu project.

We are on a clear path to completion and Galaxy will continue to work hard to ensure the Jiangsu project is completed within the revised timeframe and budget,” said Mr Tan.

Iggy Tan
Managing Director
Galaxy Resources Limited
TEL: +61-8-9215-1700
Email: [email protected]
http://www.galaxylithium.com